The business model for insurance companies depends on one central dynamic: customers pay more for their coverage than they receive, overall, in benefits. As long as that remains in place, insurance companies make money.
Major disasters, such as losses from forest fires, have the potential to rattle the industry. A global economic shock following a deadly pandemic is the type of event with no comparison, for society at large and insurers alike. Companies that offer everything from business interruption insurance to travel insurance are on the hook.
"I think it's going to be horrendous, and I worry about that in terms of New York state in my parochial area of insurance," said state Sen. Neil Breslin, the Insurance Committee chairman.
One projection estimates that the pandemic will cost health insurance companies between $34 billion and $251 billion this year. Health insurers could also lose a portion of their customer base as employers struggle to stay in business and the ranks of the unemployed grow.
In the end, it could be up to federal lawmakers to decide how much the pandemic is going to hurt health insurers. In New York, billions of dollars in future profits depend on keeping millions of people covered. Otherwise, insurance premiums will increase, industry leaders warn.
With direct help from the state and federal governments unlikely, health insurance companies are pushing for the federal government to spend billions of dollars to subsidize private health insurance for small businesses and the unemployed. It is a strategy that positions an unpopular industry in a more favorable light as it confronts an array of political and social uncertainties a nightmare for any insurer.
"There's obviously a range of pressures that are put on the plans," said Eric Linzer, president and CEO of the New York Health Plan Association, which represents health insurers. "Certainly more could be done to ensure and maintain the stability of the marketplace."
No one knows how long the pandemic will last. Data shows that more people have been infected with the coronavirus in New York than the next four highest states combined, as of the end of April. The state has tested more than 875,000 people, at least 200,000 more tests than the next closest state, California.
Plus, there are the tens of thousands of people who have required hospitalization throughout the crisis. The cost of treating all these people runs into the billions of dollars. Do insurance companies have money to cover all these costs? "Certainly they do," Linzer said. Insurers have saved money because expensive elective surgeries have been canceled, and customers are pursuing less medical attention during the pandemic for non-COVID-19 treatments.
But those temporary reprieves from some costs might not help the industry keep its market share in the coming months. More than 60% of New Yorkers have private health insurance, and 95% of people in the state are insured overall. More than 1.4 million New Yorkers have completed their unemployment benefit applications since early in March, and the closure of many small businesses means that insurance companies stand to lose a lot of customers.
Even without a second big wave of infections, and any additional economic damage that might bring, health insurers face a tough situation. There are rumblings that some people might even give up on buying insurance given the economic pinch.
To make matters worse for insurers, Gov. Andrew Cuomo has issued emergency orders that have placed additional requirements on insurers. They now have to waive cost-sharing for COVID-19 testing, waive copays for telehealth visits and cover mental health services for frontline workers. There is a moratorium on canceling plans held by small businesses and individuals who cannot pay their premiums.
The state also helped hospitals gain an upper hand on insurers by ordering in late April for them to immediately pay outstanding claims by hospitals, which are struggling to maintain their own fiscal health during the pandemic. "If the insurers withhold payments to the hospitals, and they're in financial trouble, (the hospitals are) more likely to accept a lesser amount in negotiations," Breslin said.
Health insurers have their own way of saying the state has not been on their side, including on the hospital order.
"There is a need to balance the interests of those New York hospitals in need of assistance during the COVID-19 crisis with the interest of individuals, businesses and union members who are struggling to afford premiums and making ends meet," reads an April 22 statement from the New York Health Plan Association. "Regrettably, this guidance upsets that delicate balance. At the end of the day, it will be New Yorkers with private health coverage who have to pay the price with unnecessarily higher premiums."
Raising insurance premiums, however, is not a cut and dried process. Health insurers are barred from incorporating their 2020 losses by raising rates next year unless the pandemic continues into the new year.
"Nowhere in those calculations can they say, 'We're going to lose this much money in 2020,'" Cynthia Cox, of the Kaiser Family Foundation, told Vox. But there is a loophole that allows for charging higher premiums if insurers have to dip into their reserves to cover claims, according to Vox's reporting.
"With the downturn in the economy and in the stock market, it has obviously had an effect on health claim reserves that are intended to be there to pay for claims at moments like this," Linzer told City & State.
Even if insurers can raise premiums, that will take time, especially to overcome any resistance from the state. "The regulator with respect to approving premium increases for commercial health insurance for consumers is (the state Department of Financial Services)," said department Superintendent Linda Lacewell, who added there is a "need for health insurers to step up" considering how the pandemic is slamming hospitals and everyday New Yorkers alike.
The insurance industry needs to move fast if it wants to keep its customers. While the industry hasn't been included in any of the recent federal stimulus bills, that could change in the upcoming weeks.
"Employers need more support," reads an April 28 letter to congressional leaders from groups including America's Health Insurance Plans, the Council of Insurance Agents and Brokers and the U.S. Chamber of Commerce. "Workers need to be able to continue their stable, secure coverage."
This complements calls at the state level by business groups. "A federally funded premium assistance program earmarked and targeted to small and mid-size businesses and individuals is the best opportunity to keep people insured," the New York Health Plan Association and business groups said in an April 10 letter to U.S. Senate Minority Leader Charles Schumer, who has been credited with helping the industry as recently December. A spokesperson for the senator could not be reached for comment.
But the state's most powerful member of Congress has limited sway on both the federal and state levels. More than 100 state lawmakers would just as soon abolish the whole industry and replace it with a state-level single-payer health care system rather than help them in their current predicament. "It just seems like every single time there's any instance of a large disaster, this is what they say, and I don't totally buy it," Assemblyman Robert Carroll said. But like other state and federal lawmakers including those like him who back single-payer Carroll wants to help small businesses. "They provided health care," Carroll added. "What happens if they come back as a shell of their former selves?"
The state's declining finances mean the answer to that question will most likely depend on the federal government.
The U.S. Supreme Court ruled on April 27 that health insurers can recover $12 billion because of losses incurred during the early days of Obamacare. There is still hope within the industry that the government could also help the industry by subsidizing private insurance for businesses and the unemployed. Despite the efforts of the business community to make federal lawmakers see things that way, it remains uncertain whether they will buy what these insurers are selling.